I mentioned in one of my earliest posts that I used to trade the ES (e-mini S&P futures). And how did I trade it? Well in the beginning I was using nobody’s strategy. That’s right I didn’t use anybody’s strategy and I had the most profitable week I have ever had as a trader. After reading a few books, I decided to take a stab at it. I read over and over and over the following: Do not trade against the trend. Always with trend entries. You will lose money trading in traffic and you will lose money counter-trend trading.
So what did I do? I said alright, easy enough. So I pulled up a few charts of the ES and took a look at the movement. I realized the best chances of profit were when you got a nice surge in one direction and then you get a pullback. As long as the pullback wasn’t as big as the initial surge, stopped and momentum shifted back into the direction of the bigger leg, enter. When I saw a lot of traffic or movement I couldn’t make sense of, I stayed out. I set a standard 5 tick stop and an 8 tick target. I didn’t know about fibonacci, risk management, or any of the other nuances most traders get into.
I literally sat at my desk, watched TV until I got a big surge of movement. Any 1 point move here, 3 tick there, I didn’t even bat an eye at. I sat at my desk just waiting for that nice pop for a chance to enter.
Here was my strategy for that week. It was so simple and I’ve never traded as well as I did this week.
- Wait for a surge out of traffic or continuation of the trend.
- Wait for a clean pullback (it had to be mostly one color – if it was a combination of red and green on the pullback and wasn’t visually symmetrical, I stayed out. )
- Once the pullback stalled and we got an engulfing candle back into the direction of the trend, enter 1 or 2 ticks back into the engulfing candle as to get a slightly better price (this was at the risk that price would take off without me, which was OK).
- 5 tick stop and 8 tick target
- If it looks like something I’m not familiar with or movement that has me scratching my head, stay out. (I think this rule was what kept me profitable in the early stage)
Look at this shit. 10 points on my first day sim trading the ES. Look at it. Beautiful.
Nice surge, clean pullback, I enter. Even the last trade was against the dominant trend of the day (down). Why did I take the trade? Well, because I wasn’t polluted or biased to keep trading one way and I went by the textbook definition of a trend and when we got a higher high then prices stalled at a (potential) higher low and I got an engulfing candle, I entered long. Piece of cake. Just like the books said.
And then I had to go and pick up more books and more strategies. I always wondered, if after that first week, I just stuck with this simple strategy and stayed out of the rangey stuff, if that is all I ever needed. I think it would’ve worked as long as I refined my target and stop to account for those slower days where maybe 6 tick target was better.
You can see here I tried to get fancier by adding trend lines and only using a 21 EMA like many of the price action guru’s tell you to do. The day before I didn’t even notice the lines on my chart nor did I give two shits about trend lines or anything. But you can still see I was waiting for a nice surge, and entering on clean pullbacks and although I missed the timing on a few, I had my head in the right place.
Look at this day. 4 winners. 1 point each – and I only changed my target from 2 points because one of the price action gurus said to go for 1. I think each one of those trades would’ve made 2. And all I did was wait for a little clean pop, pullback, and if I got an engulfing candle back into the direction of the initial surge, I would enter 1 or 2 ticks back into the engulfing candle to get a better price.
So my first week of sim trading the ES I only traded with 1 contract. There was a day where I only had 1 trade and I think another day where I didn’t trade at all. I wasn’t trying anything fancy, I wasn’t even going to attempt trading the rangey stuff – I was too scared because I was told that’s where you lose money. So basically only taking trades 3 1/2 days I believe my net profit was something like $730.
Why can’t I just go back to that now? Well my mental game is all fucked up. I’m thinking of second entries, if it’s a potential short trap, hesitating because some guru said this may be a range forming, the last low was only a percentage of the previous low, or the owl that hoots at midnight didn’t take a shit today. You name it and all that pollution is in my head now. Perhaps I can hire a hypnotist to get it all out?
My mind was so clean then. So devoid of all the pollution out there in the trading world. Then doubts that money can’t be made on a strategy so “stupid” and “simple” started creeping into my head. Rather than continue with it and gaining more confidence, I talked myself into fixing something that wasn’t broke. And I wasn’t even afraid to lose then because I knew that if I entered enough trades with that method that it was a guaranteed money maker.
Here was the most important thing about it. Although I did not have any rules on paper, I was very strict. If I didn’t know what was going on, I didn’t enter. I couldn’t because I was still so new to trading and only ever heard “trade with the trend.” I only entered if it was visually appealing (most symmetrical) and fit the simple rules of a trend (HH,HL or LH,LL). If I was left wondering hmmmm, does this qualify? I didn’t take the trade because I knew I didn’t know enough about anything other than trend trading. Now I think I know more than I do. Oh, let me fade this high of day….. oh, let me try and catch this triangle breakout…. blah blah. And I try to predict every little movement and if I get it wrong, I get upset. I’ve read enough books. I’ve watched enough video. I should know everything, right? Ugh.
Then I went and complicated everything. My whole mentality shifted. Nothing was wrong. Nothing was broke. So I went off in search of indicators, more rules to follow, more ways to enter, how to trade the traffic that I had stayed out of for the most part, etc. and took 2 steps back.
Now 6 months later, after all the strategies, indicators, gurus, what is the essence of all of their strategies? Entering in on the fucking pullback after an initial impulse wave or surge in anticipation of the continuation in the momentum. Wow. All that money. All that time. All that added complicated mess. And what do I get? More complicated ways to re-invent the wheel.
I’m not sure where I’d be now if I had just simply continued trading the way I initially did. I actually think pretty successful had I just stuck with those rules and stayed disciplined. But it’s just so hard to stay out of all the pollution out there with trading strategies, sites and Youtube.
I think now when I do start finding more consistent success, I’m going to shut myself off from the trading world and concentrate on doing what I do. No forums, no watching other traders… just me. And you won’t get to read my rants. Well, maybe I’ll still rant. Yeah I will still rant who am I fooling.